Deloitte Exemplar enables actuaries be more forward-looking

Jaco van der Merwe, Director: Actuarial & Insurance Solutions at Deloitte.

Reserving actuaries are arguably the first to spot emerging trends or features in insurance loss data. However, they have not until now had the requisite tools to enable them to take their forward-looking viewpoint into their company’s business planning and strategy.

Deloitte’s Actuarial & Insurance Solutions unit has recently released Deloitte Exemplar, a reserving actuarial system which will enable actuaries, more renowned for their analytical than their conversation skills, to add far more value to boardroom discussions.

Against the backdrop of a tough economic environment, a prolonged soft insurance market, SAM regulations, as well as the challenge of new types of claims arising from cybercrime and big data innovations for which limited loss data yet exists, insurers are taking a closer look at their actuarial loss reserving processes and tools.

The industry has seen a rise in the use of diagnostics and management information, particularly within personal lines.

Jaco van der Merwe, Director: Actuarial & Insurance Solutions at Deloitte, says that “while the insurance industry has been hurtling towards a more sophisticated and dynamic space, this accelerating progress has left in its wake some key gaps in the tools available to process actuarial loss reserving. This in turn affects management’s confidence that their booked loss reserves are adequate”.

“The state of front-office sophistication in insurance is not matched in back-office analytics. We have a profession which lacks the accessible tools to take the industry forward, with some actuaries still calculating loss reserves by spreadsheet,” explains Van der Merwe. This creates a degree of inherent uncertainty.

This gap came about not because the technology did not exist, it does, but because there were no affordable solutions available in South Africa, with local support. “Deloitte set about creating a proprietary tool – one made by actuaries for actuaries – that would serve the purpose of taking the actuarial profession forward and plugging these gaps. Base functionality at an affordable cost was the challenge, and we came up with a solution called Deloitte Exemplar,” he says.

“By streamlining the running of the actuarial function and automating what ought to be automated, starting with the quality of the imported data for reserving, and the elimination of repetitive tasks, the system empowers actuaries to focus on what is important and cuts down the amount of time spent on review. This is important because actuaries today are embedded in the business, having to maintain regular communication with people from different disciplines within their companies. The rise of reserving committees has certainly helped with this, where representatives of senior management, claims and underwriting regularly meet with actuaries to discuss reserves. This means that ongoing communication is an increasing aspect of the actuarial function, and the Exemplar facilitates this,” adds Van der Merwe.

Actuaries also have a higher profile at board level than they did a decade ago, where the financial crisis and regulations now demand a better understanding of actuarial work, with specific requirements for boards to demonstrate their understanding of actuarial models. Actuaries have therefore had to get better at communicating. There is certainly more detailed and explanatory reporting required now.

In order to assist with these requirements of actuaries, Van der Merwe explains that the Exemplar “is rich in features and cutting-edge functionality, particularly in respect of analytics (with virtually all the known reserving methodologies built in, from triangles and chain ladder to Bornhuetter Ferguson as the methods of choice, but with the facility to override types of data and ratios, as needed) and is particularly abundant in graphics. Though not specifically designed for massive quantities of data, it efficiently deals with large fields of data without noticeable lag”.

The Exemplar is based on actuaries’ own views that the tools they had at their disposal and reserving techniques had not progressed over the past few years in line with other advances in insurance.

“Actuaries want proven and pragmatic methods, and this system puts them in control of what the system is capable of, what it does and in the areas where it matters. In terms of alerting management to issues when things go wrong, or engaging in debates with areas of the business, our research suggests that actuarial advice appears to be highly valued, absolutely fundamental to understanding and their opinions much sought,” says Van der Merwe.

A picture has emerged of the reserving actuary as a crucial element in the insurance company toolbox. Now they have their own toolbox to add greater value by not only advising on the level of reserves, but informing strategic direction and alerting to issues early.